Properly managing the trade agreement between Mexico, the United States, and Canada (USMCA) is a major challenge for companies operating in North America. A poor understanding of origin rules or documentation errors can lead to serious consequences, from substantial fines to operational disruptions that affect the entire supply chain.
In light of the current political climate, Prodensa partnered with experts to provide detailed insights into the importance of origin analysis services. We would like to thank Adrián González, President of Global Alliance Solutions, for his valuable participation and collaboration.
The USMCA, which replaced NAFTA in July 2020, introduced significant changes to rules of origin, especially for strategic sectors. These changes aim to strengthen regional value chains and boost North American production.
The agreement has tightened origin rules, particularly in key sectors like automotive, textiles, and steel. Some major changes include:
The USTR also found evidence that suppliers are increasingly avoiding USMCA preferences. For example, the percentage of imported vehicles from Canada or Mexico subject to duties rose from 0.5% in 2019 to 8.2% in 2023. Likewise, the proportion of U.S. auto parts imports from USMCA partners facing duties more than doubled—from 9.3% to 20.5%
Failing to comply with USMCA origin rules can have multiple impacts on business operations and profitability.
One of the most direct penalties for non-compliance is the retroactive application of tariffs. If a product is found ineligible for USMCA preferences, customs authorities can demand repayment of duties that would have applied—sometimes going back as far as five years. According to CBP, penalties for incorrect origin declarations can even reach up to twice the amount of the improperly claimed benefits.
In addition to monetary fines, violators face intensive audits that may paralyze operations for weeks or even months. Once flagged, companies enter a "heightened supervision" regime with more frequent and thorough inspections, leading to significant delays and increased operational costs.
Unlike NAFTA, which required a specific certificate format, the USMCA allows more flexibility—as long as 9 essential data elements are included:
Though flexible, omitting any of these elements invalidates the certification. Importantly, the importer can issue the certification based on “reasonable knowledge” or information from the exporter or producer—but remains liable if that information is incorrect.
Canada’s Ministry of Economy states that certifications may be electronic and don’t require an original signature, making digital processes easier. Still, authorities require that certifiers retain records and supporting documentation for at least five years.
USMCA origin verifications follow a structured process and require thorough preparation. According to CBP, audits can be triggered by specific suspicions or random checks and usually start with questionnaires or information requests. Companies typically have around 30 days to respond, though this may vary depending on the country.
Canada’s CBSA adds that during verifications, auditors may request access to production sites, physical inventory, and systems related to manufacturing. Preparation includes training staff to engage with auditors and maintaining organized files for each product exported under USMCA preferences.
Traceability across the supply chain is increasingly critical to verifying origin under the USMCA. Companies must implement systems that document material origin from source to final product.
Technology is revolutionizing compliance through advanced traceability tools that provide full transparency—essential for addressing concerns like forced labor—while also giving businesses greater control, visibility, and alignment with regulations. Among these, blockchain-based solutions are gaining momentum in the USMCA region, enabling faster and more reliable verification of critical components' origin.
USMCA non-compliance notices must be handled quickly and thoroughly to reduce risk. Companies usually have 30 to 45 days to respond, and this period is key to resolving the issue.
Around 40% of initial non-compliance notices are resolved favorably when companies provide additional documentation not included in the original evaluation—underscoring the importance of maintaining complete records and responding thoroughly. If a violation is confirmed, it's important to engage in active negotiation, as voluntary disclosure programs can often help reduce penalties when companies acknowledge mistakes and present clear corrective actions.
The effects of USMCA non-compliance go beyond penalties and can seriously damage business relationships and reputation.
Companies flagged for origin violations often see a decline in new contracts within the following 12 months, as corporate buyers—particularly in highly regulated industries—increasingly evaluate suppliers based on their trade and customs compliance.
Many manufacturers now include clauses that allow for immediate termination if a supplier compromises operations due to USMCA-related issues. In parallel, trade violations are receiving more negative media coverage, reflecting growing public and corporate attention to ethical business conduct. Financial institutions are also factoring trade compliance into risk assessments, which can result in stricter credit terms for companies with a history of violations.
Rules of origin are stricter under USMCA than under NAFTA, especially in key sectors like automotive (75% regional content vs. 62.5%), pushing many companies to restructure supply chains.
Penalties for non-compliance are severe and multi-faceted, including retroactive duties (up to five years), fines that double the tariff benefit, and heightened supervision that can increase logistics costs by 35% on average.
Traceability is essential to origin verification. Companies with advanced systems are less likely to face penalties and resolve audits in half the time.
Most initial non-compliance notices are resolved favorably when full documentation is provided, emphasizing the importance of thorough recordkeeping and complete responses.
Non-compliance significantly affects business relationships and reputation, with reduced contract opportunities and immediate termination clauses, as well as less favorable credit terms for repeat violators.